Macro

• The QRA announcement will be released in a few hours (on Monday) while the issuance details will be released on Wednesday.
• We generally don’t see any reasons to fear the Q2 issuance as a strong tax-season has been confirmed with the TGA standing at 941bn dollars, which is almost 200bn above the target range.

• The TGA also printed above the target range going into Q2, making it unlikely that the US Treasury turns the heat on in the issuance pace. We see a small downgrade of the Q2 number (202bn) as the most likely.

• Energy markets in Europe still fragile. A hot summer and manufacturing rebound could set prices going.
• Manufacturing cycle is improving everywhere but in Germany. Cost-push inflation showing up in drilling now
• This week we want to talk about the ingredients needed for another summer of exploding electricity and gas prices.

• Welcome to this week’s Great Game where we will catch up on events in the Middle East and also cover the Trump trial that’s currently taking all the attention in the US Election race.
• Situation:Israel responded very lightly to the massive Iranian attack on April 13th and we haven’t heard any more from that conflict over the past week.
• As we predicted, Israel’s response was “next to nothing” and clearly acknowledged the de-escalatory nature of Iran’s strike. I know some took offense to that analysis, but it is genuinely our assessment and I think events since has reinforced that view.

• EA inflation unsurprisingly remained at 2.4% y-o-y in April, with a 5bps slowing taking it within 1bps of our forecast. Energy and industrial goods continue to weigh temporarily.
• Services inflation ended a five-month streak at 4%, slowing to 3.7%. That was a tenth higher than we expected again, with the core rate 3bps more resilient at 2.67%.
• The ECB will be reassured by services inflation slowing, easing a June cut, but ongoing upside surprises urge caution, with September’s cut conditional on progress at the Fed.

• Although the fiscal deficit declined to 1.6% of GDP in 2023, markets are pricing in risks arising from President-elect Prabowo’s possible resort to fiscal profligacy in pursuit of 8% growth. 
• More tangibly, with exports declining 7.5%YoY and imports up 1.1%YoY in Q1CY24, the trade surplus shrank to US$7.3bn (from Q1CY23’s US$12.11bn), likely widening the CAD (from Q4CY23’s 0.4% of GDP).   
• With IDR depreciating 9.3%YoY, BI hiked its policy rate by 25bp last week to pre-empt imported inflation. Another rate hike is likely before Oct’24, so we would Underweight Indonesia. 

• Inflation in the first half of April was 4.59% annualized, slightly above our estimate.
• The first fortnight of April typically presents a negative variation due to seasonal electricity subsidies.
• However, this time it was offset by an increase in multiple agricultural products.

• The Banco de la República Colombia’s unsurprising decision to reduce the policy interest rate by 50 basis points to 11.75% aims to bolster economic growth against a backdrop of declining inflation, with the central bank maintaining a careful balance to avoid overheating the economy.
• Updated economic projections suggest a recovery, albeit juxtaposed with a concerning uptick in unemployment rates, presenting a challenge for ongoing monetary policy adjustments.
• External economic pressures, particularly from US policy shifts and global financial market trends, remain pivotal in shaping the future trajectory of Colombia’s monetary policy, emphasizing the importance of adaptive strategies to navigate international uncertainties.

• Overcapacity /Cover Story: How do the West’s concerns about China’s overcapacity stack up?
• Tesla /: Four things to know about Tesla’s advanced self-driving tech in China
• Stocks /: Overseas investment through China’s Stock Connect nearly doubles 2023’s total

• I spent last week in Asia and even though I admittedly like to see my research as edgy and contrarian, I quickly realized that most PMs in the region agreed on my take on the imminent risk of a devaluation of the CNY.
• USD/CNH call options are popular/consensus in the Asian Macro PM space, but interestingly there is no consensus around the contagion from a devaluation of the USDCNY.
• The discussions I had pointed in all directions, meaning that a CNY devaluation holds the potential to turn into a macro earthquake, despite it already being a consensus position.

• Welcome to our weekly Portfolio Watch! We have had a strong week in our portfolio with a USD-reflationary lean, but we are starting to contemplate how to deal with contagion from a continued rise in USD versus Asian FX pairs, especially if the increasing latent risk of a major devaluation of the CNY comes into fruition.
• There is currently no respite for the Asian FX pairs as all major forward looking models point to a reacceleration of US inflation trends from the current plateau around 3.5% YoY.
• We will look at the devaluation risks in detail tomorrow in our weekly “Steno Signals”, but will pinpoint value pockets in markets already today in our Portfolio Watch.

• Copper market may be running ahead of a fundamental story, with extreme tightening in the copper concentrate market
• Chinese demand has stepped back due to surging copper prices, but expected to acclimatize to higher price levels
• Supply side challenges may take a couple more quarters to resolve, leading towards a tighter refined market in the future and potential supply shortfalls by 2030.

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• Failure to remove policy accommodation after household balance sheets had been repaired after the global financial crisis simply prolonged the secular stagnation thesis that had been embraced by bond investors.
• The current estimate of the real neutral federal funds rate is too low relative to potential GDP growth, presenting an opportunity for bond investors to jettison their secular stagnation thesis.
• A structurally higher neutral Fed policy rate will impact short-term funding markets, while equity investors will need to place greater focus on long-term corporate profit growth for their returns. 

• Bilal, CEO and head of research at Macro Hive, shares his background and career journey in finance
• Raised in a working-class immigrant family in Oxford, excelled academically and went to Cambridge to study economics
• Started career in finance at JP Morgan in FX research, later moved to Deutsche bank where he specialized in building models and smart beta strategies in currency markets

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• The past week saw insights on Bank Central Asia (BBCA IJ), BFI Finance Indonesia (BFIN IJ),Elite Commercial REIT (ELITE SP) and OceanaGold IPO in the Philippines. 
• There were also macro insights on Indonesia and Singapore plus a sector insight on Thai banks and an index rebalancing from Brian Freitas on the LQ45 in Indonesia. 
• The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia

• The short term is suddenly looking bullish for iron ore, as rumors abound that tier-1 cities in China may remove home-buying restrictions in May, and auto stimulus measures were announced. 
• Cities like Chengdu and Nanjing have already announced measures to make home-buying more attractive, such as removing purchase qualifications and pilot programs for old-for-new home housing. 
• We like 62% Fe and see it trade up to its upper limit of 130 USD/ton (vs. current 117 USD/ton). On equities, we like Vale (VALE US) .

• The overall outcome of this week’s local elections and by-election may not be as bad for the Conservatives as expected.
• Rishi Sunak may be increasingly considering a snap general election.
• This consideration comes as challenges continue to mount for the Conservatives.

• Going forward, Energy could face some selling flows from CTAs according to the latest CTA flow update by UBSS

• UBS ‘Contrarian’ trades: bullish Agriculturals and LME Lead, bearish Energy, Cocoa, Lean Hogs and Platinum

• UBS ‘Go with momentum’ trades: bullish Zinc, Aluminium, bearish Cotton, Sugar and Palladium

• Vietnam’s CPI inflation increased by 0.4pp, reaching 4.4% in April 2024, the highest since January 2023.
• The inflation rate is 1.11 percentage points above the one-year average.
• This indicates a renewed acceleration of inflationary pressures.

• The U.S. economy is undergoing a mid-cycle expansion, which is characterized by a combination of fundamental and technical momentum.
• As long as the economy stays resilient, earnings estimates rise and inflation doesn’t accelerate, stock prices can advance without rate cuts.
• The key tail-risk to the benign scenario is a disorderly Asian competitive currency devaluation that sinks emerging markets and sparks a risk-off response.

• Welcome to our now-cast series on EUR-flation.
• We have been banging the drum on dovish surprises in the Euro area for a while, but there are signs of upside risks in April inflation numbers from our price observations made through the month.
• Especially German inflation could surprise on the sticky/high side of consensus.Our overall now-cast projections lean around 0.1%-points above consensus for April.

• Indonesia raises interest rates unexpectedly, citing currency weakness.
• Japan faces continued yen depreciation amid low interest rates.
• China’s economic indicators show mixed signals, with GDP growth but weak money supply growth.

• This week’s data releases have increased hawkish pressures, despite disappointing US PMI results. High inflation is impacting real demand, with delayed Fed cuts leading to speculation of BOJ intervention and a rate hike in Indonesia.
• The Federal Reserve is expected to maintain rates in its upcoming meeting, with indications that the next move will likely be a rate cut. However, it is deemed appropriate to wait longer before implementing this.
• Consensus expectations are for Euro area inflation to remain steady at 2.4% in the April flash.

• We’ll start by addressing the title of this month’s Ifo nugget.
• We note from our two main models for predicting demand driven price pressures that wage pressures are continuing to fade and last month’s uptick in the employment barometer has faded again and we are still looking at wages and salaries in the pre Covid range and the other side of the Summer.
• The same is likely true for Core CPI in Germany.

• The BOJ has maintained its policy rate at 0.0-0.1%, consistent with market expectations, reflecting ongoing economic recovery with moderate inflation, set against a backdrop of global economic uncertainty.
• Future interest rate decisions will be influenced by global economic conditions, domestic economic performance, inflation trends, and financial market stability, with a vigilant approach towards any necessary adjustments to maintain economic growth and price stability.
• The central bank projects that the economy will continue to grow modestly above its potential. It expects CPI inflation to stabilize around 2% by fiscal 2025 and 2026, supported by government measures and favourable financial conditions.

• On 6 November 2023, the Korean government announced that it will temporarily ban short selling stocks until end of June 2024. 
• On 25 April 2024, the FSS unveiled for the first time its plan to build a computer system to prevent naked short selling called NSDS (Naked Short Selling Detection System).
• There is a high probability that the the temporary ban on short selling which currently lasts until end of June 2024, could be extended further to 2Q 2025.

• Welcome to our weekly ‘5 Things We Watch’, where we as always zoom in on 5 of the things we look out for in global macro.
• The battleground in macro for Q2/Q3 looks to be found in Asian FX, where the USD wrecking ball has increased risk of policy action in both China and Japan, which would have significant implications for global assets.
• This week we are watching out for the following 5 topics within global macro

• China Enterprise Index (HSCEI) is now the top performing index in Asia on a USD basis
• HSCEI also trades at the lowest P/E multiple in the Asia
• High probability of divergence as US and Europe markets turn down

• Gold prices touched a record high in April despite headwinds due to robust demand from Chinese speculators.
• Asian Gold ETFs saw a net inflow of funds in April, while American and European Gold ETFs witnessed net outflows.
• Demand for gold continues to be driven by central banks of emerging markets like China, India, and Türkiye.

• QE or not QE – that is the question for China.
• Gold’s rise postponed by margin increases from major trading centres?
• US markets looking increasingly risky as utilities rise in absolute and relative terms.

• Insurance / In Depth: China’s insurers scale back high-yield investment
• Laura M. Cha /In depth: Regulatory titan Laura Cha takes final bow
• China-EU /Sino-EU ties could be strengthened by food trade, Europe’s agriculture chief says

• Despite China’s increasing efforts to become an artificial intelligence superpower, there is still a huge funding gap with the U.S. in the realm of AI-generated content (AIGC), a major Chinese venture capital investor said.
• Chinese companies developing AIGC solutions — which use AI to produce content based on user inputs such as questions and keywords — raised a total of around $1.3 billion last year, compared with $23 billion raised by their American counterparts, Zhou Zhifeng, a partner at Qiming Venture Partners, said at an industry event Thursday.
• That $1.3 billion of capital was almost all invested in developers of foundational large language models (LLMs) in China, while foundational LLM developers bagged nearly 87% of the $23 billion in the U.S., Zhou said.

• Lower US GDP growth and higher inflation have revealed that sentiment is turning negative due to the latter.
• China is stuck between a rock and a hard place, which makes expecting a short-term devaluation of the Chinese Yuan a bit too easy.
• Will the labor market open the door to a recession? And what’s up with gold and Bitcoin lately?

• Comments from BoE MPC members have roiled market pricing recently amid perceived contradictions between each other and the hawkish flow of macro data.
• Members make different risk assessments that vary the evidence required to cut. Shocks this month are insufficient to break the dovish belief in disinflationary progress.
• Further resilience would encourage MPC members to delay their dovish hopes, just as it did with the FOMC. An unlikely hasty cut risks repeating the BoE’s 2005 policy error.

• This report identifies stocks at the extremes of their positioning or momentum ranges within our active Global EM fund universe.
• We have pinpointed eight stocks either at their historical positioning extremes or undergoing significant changes in fund ownership, providing detailed ownership profiles for each.
• HDFC Bank loses steam after merger, Nu Holdings surges to new highs, POSCO plunges to new fund ownership lows.

• The ‘trade recession’ of 2023 is over, and the OECD CLI suggests global trade should grow 4.5% this year, after just 0.4% growth in 2023 (akin to global trade recession). 
• Despite a hot job market (unemployment rate below NAIRU for 3 years), record illegal and legal immigration (and their higher working-age proportion) are keeping US wage growth relatively in check. 
• MoM gains in core PCE were lower than core CPI in Feb’24, and likely will be in Mar’24 also, allowing a glide to lower core-PCE inflation and Jul’24 rate cut. 

• China’s battered-down real estate sector and everything around it are craving for more rate cuts.
• However, with foreign direct investment plummeting, a currency depreciation would further undermine China’s status as an attractive investment destination.
• To make things worse, the Powell pivot means any depreciation-like action will likely be supersized.

• TikTok /:  TikTok faces regulatory hurdles in bid to become No.
• Holiday /: Japan expects flood of Chinese tourists over Labor Day holiday
• Leverage /: China’s macro leverage ratio rises to 294.8% despite slower borrowing

• Changing circumstances in the Middle East are causing uncertainty in oil price forecasts.
• Market analysts have a wide range of predictions due to these uncertain factors.
• The escalating tensions between Iran and Israel are increasing risks, potentially leading to higher oil prices.

• Social security / Cover Story: China’s balancing act to keep its social security system afloat
• China-U.S. /: U.S. Secretary of State to make second China trip in less than a year
• Flood /: Authorities warn deadly South China floods may get worse

• Bank Indonesia unexpectedly raised the BI-Rate by 25bps to 6.25%, defying the consensus forecast as it aims to stabilize the Rupiah and curb inflation amid global financial uncertainties.
• The rate hike is a strategic response to external pressures and inflation risks, ensuring that inflation remains within the 2.5 ± 1% target range through preemptive monetary tightening.
• Despite the rate increase, Bank Indonesia maintains a pro-growth approach through supportive macroprudential policies and enhancements to the payment system, promoting economic expansion and financial system stability.

• HSI has now closed above its 3 year downtrend and is poised to advance to its next resistance level
• International brokers finally turning more bullish on the market as the US, Europe and Japan markets turn down
• High beta sectors are set to outperform as global investors reallocate to the cheapest AND 2nd largest tech sector in the world

• Sweden’s unemployment rate rose to 9.2% in March 2024, exceeding the predicted rate of 8.2%, which is the highest since June 2023.
• The current unemployment rate is 1.31 percentage points higher than the average rate over the past year.
• This increase indicates a concerning decline in the labour market.

• Australia’s CPI inflation rate decreased by 0.5 percentage points to 3.6% year-on-year in Q1-24, surpassing consensus expectations of 3.4%.
• The weighted median inflation rate remained stable at 4.4%.
• The trimmed mean inflation rate slowed down slightly by 0.2 percentage points to 4%, which was less than expected.

• In this analysis, we provide a back testing analysis of the end of mandatory lock-up periods monthly data in Korea in the past six months.
• All in all, this end of mandatory lock-up period monthly data continues to provide some alpha generating results.
• In the past six months, they have tended to work better in periods when KOSPI declines rather than in periods when KOSPI rises. 

• Despite trade and other frictions between Washington and Beijing, the two sides have set up mechanisms for regular high-level exchanges and other guard rails which reduce risks. 
• However, as more big powers turn hawkish on defence and trade, other Asian exporters may end up being collateral damage from anti-China protectionism. 
• Closer to home, the ongoing Myanmar conflict is reaching an imminent turning point as the risk of China getting involved increases and the fighting becomes more intense.

• With all eyes on the Middle East for the past weeks and months, we haven’t focused as much on the ongoing war in Ukraine.
• In the big picture, not much has changes on the frontline despite continued heavy losses and a Russian election.
• But now I think it’s time for investors to re-adjust their assessment of the war and consider contingencies for the path ahead.

• China’s first quarter growth of 5.3% comes amidst a slew of other positive data releases, including an improvement in fixed asset investments and a turnaround in net exports. 
• But a closer examination suggests that momentum remains weak; the recovery was boosted by Lunar New Year spending, which showed signs of fading by March. 
• Overcapacity and trade tensions remain major headwinds for any export-led recovery; even as property sector misery continues to dampen purchaser sentiment.  

• The PMIs mostly revealed surprise resilience in April, albeit with the US disappointing. Divergent surprises may reflect excessive spread changes in policy expectations.
• Residual seasonality may exaggerate current strength and unwind in the summer, but stability in unemployment trends still suggests global monetary policy is not that tight.
• Persistent excess demand requires tight conditions to be sustained. The BoE MPC seems desperate to cut, but resilience should delay it, including relative to Fed pricing.

• In our April monthly, we highlighted the combination of fading impulse for momentum stocks (principally tech) and the need for tax related selling in the trading/retail space coming against a background of a correction in the short term bull phase within the longer term bond bear market.

• Since the beginning of March, US 10 year yields have gone from 4% to around 4.6%, unwinding the Fed Pivot language that emerged to ‘explain’ the earlier rally.

• In our view that was an unlikely ex-post narrative, as is the one emerging now that the Fed will not cut at all.

• Singapore’s CPI inflation in March 2024 dropped to 2.7% year-on-year, which was lower than the market consensus of 3.0%, showing a significant moderation of price pressures.
• The inflation rate is 1.34 percentage points below the one-year average.
• This data highlights a persistent disinflationary trend in Singapore.

• Hello everyone, and welcome back to our weekly positioning watch, where we as usual will dive into positioning and sentiment data to provide you with the latest overview of crowded trades and where the markets are leaning.
• This week we dig into how the rise of volatility (and volatility of volatility) has affected market positioning, if the recent weakness in equities has shaken around positioning (hint: it has) and the recent developments in rates pricing, where the outcome space for the DEC2024 SOFR contract has turned significantly more uniform in hawks’ favor.
• The VIX recently woke up after a long period of being range-bound between 12.5 and 15, surging on the back of weakness in equities as tax payments have been due in April combined with a slightly hotter than expected CPI report and hawkish remarks from Powell.

• Fund Managers Are Long Commodities Again Be careful if you’re heavily long commodities at the moment.
• The Bank of America survey usually always works as a great contra sentiment indicator.
• If fund managers are heavily long commodities – prices tend to top out.

• Strong dollar not seen as a problem for the US or the Fed, more concerning for the rest of the world
• Unlikely to see coordinated global intervention due to high hurdles and lack of exceptional circumstances
• Dollar CNY stability due to PBOC holding it down, may welcome cooling pressures on the currency from Japan and Korea verbal interventions

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• Investors have become more hawkish about the outlook for Fed policy compared to Federal Open Market Committee (FOMC) members for the first time since the infamous taper tantrum in 2013
• Engineering a policy pivot away from higher for longer rhetoric towards policy rate cuts will provide a communication challenge if sticky service sector inflation persists.
• Profligate fiscal policy complicates the Fed’s prospective conduct. The required measures for sustainable fiscal policy are off-limits, raising the possibility of higher inflation to stabilise the debt-to-GDP ratio.    

• The past week saw insights on Medikaloka Hermina (HEAL IJ), PT Avia Avian (AVIA IJ), Vinfast (VFS US), CP FOODS (CPF TB), and Johor Plantations IPO.
• There were also insights on Singapore REITS, 14 stocks to own in ASEAN from Dr. Andrew Stotz, CFA,  CrossASEAN Ground Zero looking at ROTI, Indonesian Hospitals and the Tower sector. 
• The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

• Inflation data has been hotter than expected, remaining stubbornly above 3%
• Demand in the economy has been robust, with strong retail sales and job reports
• Richmond Fed President Tom Barkin discusses potential factors influencing inflation and the need for offsetting housing strength in the economy

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• Welcome to our weekly “the week at a glance” publication where we dissect the most important central bank meetings and key figure releases in a short and sweet format.
• This week we focus on PCE prices, European PMIs and the Bank of Japan.
• Event 1: European PMIs (Tues): A lukewarm, but positive, surprise.

• Calmness returned to pockets of cross asset markets last week.
• The long end of the US yield curve got off its highs, crude got back under USD 90 and equities are left as the only truly hurt asset with SPX dipping under 5k for the first time since Feb.
• Month-to-date, Energy remains the only sector in green, underlining what we have been saying since the inception of this newsletter

• Ben Bernanke’s review of forecasting at the Bank of England raised many suggestions. We hope the BoE doesn’t dodge two aspects critical to improving its guidance.
• Inflation expectations are poorly captured in forecasts, contributing to misguided market views and leaving MPC members open to attack when critiquing surging wages.
• MPC rate expectations would best replace the conditioning rate path. Absent that, market rates are better than alternatives so that path should not be de-emphasised.

Note: This is part of an external compendium of responses to the Bernanke review.

• Fears of a repeat of the 1970s inflation cycle are overblown. Inflationary expectations are well anchored and the pace of wage increases are decelerating.
• However, the IMF has warned of the risks of the deteriorating U.S. fiscal picture and investors have to acknowledge that we are in an age of fiscal dominance.
• For investors, the evolution of risk appetite will depend on changes in inflationary expectations and term premium.

• Stock prices have had to contend with a trifecta of woes: Fear of a hawkish pivot by the Fed; Strong USD; and Geopolitical risk and rising oil prices.
• The stock market is very oversold and ripe for a relief rally. The key question is: does the bounce represent a durable bottom or is there more downside ahead?
• As investors and traders wait for the inevitable bounce, here are what we are watching.

• China is preparing something BIG. That seems more and more obvious to me by the week now. The question is what that BIG thing is.
• China reported a strong 5.2% YoY Q1 despite troubles on the ground, local financial institutions are hoarding bonds because of a weak credit demand growth picture and the Chinese authorities seem to be stockpiling like crazy.
• We have seen plenty of tin-foil theories speculating in the reasons behind those Chinese actions, but maybe China is just preparing a major one-off devaluation of the CNY?

• Headlines in the beginning of 2024 were dominated by shipping and logistic troubles but over the last months that has almost died completely down.
• With “no news” we continue to see spill-overs to goods inflation in coming months.
• In general freight rates have been falling since Jan high but still remain some 50% above 2023 levels

• Tax receipts post-tax day are tracking about 15% above last year’s pace, below 2022 levels.
• Increase in electronic filings leads to quicker processing of tax receipts.
• TGA balances have increased by $250 billion to $930 billion, in line with 2022 trends.

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• Welcome to our weekly Portfolio Watch.
• We have returned -0,87% in our Macro Alpha Portfolio this week as of the time of writing, which is a decent return profile given the drawdowns seen across the asset universe.
• We have been sitting on our hands due to the trickiness of timing the missiles flying back and forth in the Middle East and due to our lack of conviction that the timing is right to re-enter riskier bets.

• I harness my hybrid nowcasting framework to track the growth prospects of the G3 (US, Euro Area and Japan) economies
• Overall, G3 real GDP growth seems to be tracking potentially slower, though uneven across the individual economies, in 1Q 2024
• My nowcasts imply that the G3 economies are unlikely to wiggle uniformly in the first-half of 2024 on balance

• Federal Reserve “shocks’ markets by taking early rate cuts off the table
• New tactics in the Russia/Ukraine war do not bode well for lower oil prices
• China releases  Q1 GDP data  which is “stronger” than expected